The Walking Debt

Even if it was just a Tea Party blunder, we are all relieved that the debt ceiling has been raised and that the government shutdown is over, right? Interviewed by The Real News Network, Professor of Economics Gerald Epstein considers the debt ceiling show to be essentially meaningless:

The debt ceiling is an odd legal rule that was set up in the 1920s to try to give Congress some say over borrowing. But in fact it’s redundant because the United States Congress and the president make decisions about spending, and by making decisions about spending they’re also make decisions about how to finance it. And if their budget requires borrowing, then that’s implicit in the decisions made by the Congress. So it’s completely redundant and adds a political complication to the whole structure that we now are living with.

Epstein is also codirector of the Political Economy Research Institute (PERI).

The big problem for the United States is not the amount of debt that it owes, but it’s the way that it’s been investing in social assets–in education, in infrastructure, in all the things that can make the economy develop properly. … oftentimes those kinds of investments, they pay for themselves in terms of more and more revenue. But as the economy grows, the amount of debt relative to the GNP goes down anyway. And I think most economists, including at the Congressional Budget Office and elsewhere, realize that this whole debt is a secondary issue. … right-wingers that are financed by big billionaires like the Koch brothers and others, their goal is to completely dismantle those aspects of the government that threaten them, [so] this debt ceiling fight has gotten out of control.

Like most people, Epstein assumes that the economy will just keep growing. Because, except for the occasional depression, recession or panic, Western economies have grown for the last several hundred years. But at the ArchDruid Report, John Michael Greer warns that imperial decline and energy depletion will inexorably lead to the reverse of that trend:

… These days the US government spends about twice as much each year as it takes in from taxes, user fees, and all other revenue sources, and makes up the difference by borrowing money. … A variety of gimmicks, … printing money at a frantic pace — has forced interest rates down to historically low levels, in order to keep the federal government’s debt payments down to an annual sum that we can pretend to afford. … None of those measures has a long shelf life. They’re all basically stopgaps, and it’s probably safe to assume that the people who decided to put them into place believed that before the last of the stopgaps stopped working, the US economy would resume its normal trajectory of growth and bail everyone out. That hasn’t happened, and there are good reasons to think that it’s not going to happen—not this year, not this decade, not in our lifetimes.

So, why hasn’t the economy started growing?

… the traditional drivers of growth aren’t coming into play, because the surplus of real wealth needed to make them function isn’t there any more, having had to be diverted to keep drilling more and more short-lived wells in the Bakken Shale.

Essentially, we are spending more fossil fuel energy to try to keep the fossil fuels flowing. When we reach the point that it takes all the energy from a barrel of oil to extract and transport a barrel of oil, we will be back to relying on all forms of solar energy – everything from passive solar to ethanol – and probably limited installations of nuclear power – generated far away from those that will actually be using it, but paid for by those at risk.